Triumph Group Inc (TGI) has faced a recent downgrade from Truist Securities, highlighting the challenges the company faces amid uncertainty in the aircraft manufacturing landscape. While Triumph Group has undertaken a transformation process resulting in a “leaner, more focused portfolio,” this positive development is being overshadowed by concerns surrounding the production rates of Boeing Co (BA) and Airbus SE (EADSY).
Analyst Ronald Epstein of BofA Securities has downgraded Triumph Group’s rating from Buy to Underperform, simultaneously lowering the price target from $17 to $12. Epstein’s rationale for the downgrade centers on the company’s Installations segment, which is currently producing 13 units per month. This rate is significantly below the level necessary for margin expansion, raising concerns about the company’s financial performance.
Additionally, Epstein points to the Composites and Cabin Components segment, producing 30 units per month, as another area of risk. He emphasizes that this segment also faces potential downside risks. The analyst further expresses concern about Triumph Group’s growing working capital needs, which could negatively impact free cash flow generation and exacerbate margin headwinds.
The downgrade comes as Triumph Group ramps up production, and its inventory is being accepted by both Boeing and Airbus. However, Epstein cautions that any further production cuts could lead to destocking, compounding existing free cash flow challenges. These challenges include the sunsetting of the V-22 program, OEM deferrals, inflation, and supply chain shortages.
As a result of the downgrade, Triumph Group’s share price dropped by 5.35% to $12.83 at the time of publication on Tuesday. This move highlights the market’s reaction to the analyst’s concerns and the uncertainty surrounding the company’s future performance.
